December 2014

The year of deflation and lower returns

While the year 2014 began with expectations of higher growth, higher yields and higher stocks, it is ending with the reality of lower inflation, lower yields and higher stocks, a report said.

It also ends with asset markets and the bull case for risk assets still embarrassingly dependent on central bank intervention, added the recent report from Bank of America (BofA) Merrill Lynch Global Research titled “Thundering Word: The Year Behind”.

Global central bank assets, including foreign exchange reserves, now stand at $22.6 trillion, a sum larger than the combined GDP of the US and Japan, the report said.

Aggressive central bank in 2014 led to higher spreads and volatility, disappointing fixed returns and lower, more volatile and narrower equity returns. “Expect more of the same next year unless non-US EPS surprises on upside via reform,” the research report warned.

Eighty-three per cent of world equity market cap is currently supported by zero interest rate policies; and 50 per cent of all government bonds in the world currently yield 1 per cent or less, it noted.

And yet the total return from global government bond markets in 2013 and 2014 combined is on course to fall 4 per cent, the worst two-year return since the early-80s.

Nervousness over the withdrawal of that intervention in the US and UK, or failure of that intervention in Europe and Japan has caused an unambiguous flight to “growth”, “quality” and “liquidity” in 2014.

The QE leadership of high yield and small cap stocks faltered badly this year. And investors rotated to stocks in search of yield allowing the modest but dogged outperformance of high dividend-yielding stocks versus high yield corporate bonds to continue.

The best performing asset of 2014, the dollar, benefitted from “flight to quality”. Long dollar is the consensus trade going into 2015 and this will at some point be challenged, the report said.

The year 2014 ends with optimism that reflation and reform could be underway in China and Japan, although Japan needs to prove to investors that their equity market can go up at some point without the lazy help of currency depreciation.

But markets remain extremely doubtful that European Central Bank (ECB) reflation will go hand-in-hand with reform in Europe. Until it does, Europe will remain a positive for volatility and a potential bear catalyst for both equity and credit markets next year.


Oman real GDP growth to hit 4.5pc

Oman’s real GDP is expected to grow by 4.5 per cent in 2015 mainly driven by a strong non-oil performance averaging seven per cent as the government’s diversification ambitions begin to have an impact, said a report.

Oman’s real GDP is expected to grow by four per cent in 2014 and 4.5 per cent in 2015, driven by a strong non-oil performance averaging seven per cent over the forecast period as the government’s diversification ambitions, focusing on the tourism, industrial and manufacturing sectors, begin to have an impact, said a report.

The non-oil activity will be driving Oman’s growth in the coming years, according to the report by National bank of Kuwait (NBK).

With conservation in mind, the Omani government has opted to manage its crude oil reserves by limiting production, shifting its focus to diversifying its economy.

The public deficit is expected to widen as investment expenditures begin to take off and revenues recede because of declining oil prices. In tandem, a contraction in the current account surplus is expected on the back of a growing energy import bill, stated the NBK in its report.

Credit and the stock market are expected to benefit from the boost in aggregate demand, the latter supported by the $30 billion worth of projects to be executed over the coming years. This is sizable compared to an estimated GDP size of $80 billion for 2013, it added.

Ambitious development goals and diversification will continue to pressure Oman to efficiently manage its maturing hydrocarbon resources. Oil GDP growth is expected to slow to 0.8 per cent this year and 0.5 per cent the next, from 2.8 per cent in 2013.

Headline inflation averaged 1.1 per cent in 2013, the lowest since 2005. Growth was withheld by timid increases in housing and transportation, which make up 46 per cent of the basket of goods. Core inflation, which excludes housing and food, registered a deceleration as well, averaging 0.6 per cent in 2013.


Firms wary of wearable technology

Forty-three per cent of organisations in Europe, the Middle East and Africa (EMEA) have plans in place to leverage the Internet of Things, while a majority is not ready for wearable technology in the workplace, a report said.

More than half (57 per cent) said their “bring your own device” (BYOD) policy does not address wearables and a further 24 per cent do not even have a BYOD policy in place, in the survey “2014 IT Risk/Reward Barometer” conducted by global IT association Isaca.

This is a concern, as approximately 8 in 10 respondents (81 per cent) say BYOW (bring your own wearables) is as risky as - or riskier than - BYOD, the report said.

Overall, half of Isaca members across EMEA believe the benefit of the Internet of Things outweighs the risk for individuals (50 per cent), while nearly a third believe the risk outweighs the benefit for enterprises (31 per cent).

Yet despite the risks, nearly a third (30 per cent) says the Internet of Things has given their business greater access to information and a quarter (25 per cent) say it has improved services in their organisation.

Approximately four in 10 hope to benefit from improved services (40 per cent), increased customer satisfaction (39 per cent), and greater efficiency (38 per cent) as a result of connected devices.


Big growth foreseen for cloud traffic

The Middle East and Africa will post the world’s highest cloud traffic growth rate, growing more than eight-fold from 2013-2018, a report said.

Cloud workloads, cloud traffic, and cloud storage will also see worldwide growth, with private cloud significantly larger than public cloud, added the fourth annual Cisco Global Cloud Index (2013 – 2018).

Global data centre traffic will nearly triple, with cloud representing 76 per cent of total data center traffic. By 2018, half of the world’s population will have residential Internet access, and more than half of those users’ (53 per cent) content will be supported by personal cloud storage services, the report said.

With the Middle East and Africa (MEA) having the world’s highest mobile devices per user, at more than seven per user, the region’s cloud traffic will grow from 31 exabytes in 2013 to 262 exabytes in 2018, at a CAGR of 54 per cent.

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